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Evidence, risk assessment, specific risks & audit risks

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Below are five questions that all need to be based on the United States.

1. Provide and discuss some of the evidence regarding the significance of fraud in the United States.

2. Describe the risk assessment procedures used by auditors to identify risks of material misstatements in the financial statements due to fraud.

3. Explain two specific risks of fraud that the auditor should always consider in every audit. How should the auditor respond to these risks when making decisions about the risk of material misstatement?

4. What is the relationship among the components of audit risk?

5. Explain the relationship between materiality, detection risk, and substantive audit evidence.

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The response addresses the queries posted in 902 words with references.

In corporations, accounting and auditing have immense importance. In this work, risk assessment procedure plays a vital role to detect fraud and misstatement of financial statements. This procedure discloses inside trading, if any, and helps the shareholders. Here, we will discuss about the risk assessment procedure with the help of some examples.// Evidences Regarding the Significance of Fraud in the United States:

There are some evidences that support the cases of fraud in the United States. For example, the corporations present misleading financial performance reports to the shareholders and creditors. Securities and Exchange Commission (SEC) of the US in 1930 granted monopoly auditing power to the Certified Public Accountants (CPAs). But the CPA external auditors always insisted that they are only expected to detect the fraud of conformance of accepted accounting principles, not material distortion of bottom line, hence, corporations can easily cheat the shareholders. Therefore, corporations devised increasingly sophisticated financial contracts in 1980 to distort some financial statements. Cases of occupational fraud are also prevalent, employees who might otherwise be honest, justify stealing from employers by saying that they are underpaid. Similarly, in the age of computers, electronic fraud is increasingly evident. When computers are connected through the internet, hackers crack into central database and either steal directly from a company or steal records in secondary market.

Risk Assessment Procedure of Auditing:

Auditors review the firm's financial ...

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The response addresses the queries posted in 902 words with references.

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9-23 (Detection risk and audit evidence) risk components matrix

9-23 (Detection risk and audit evidence) Shown below are five situations in which the auditor wishes to determine planned acceptable levels of detection risk and the planned levels of evidence needed for specific financial statement assertions. The auditor has used judgment in arriving at the nonquantitative expressions for various risk factors.
Situation
A B C D E
Desired audit risk Very low Very low Very low Very low Very low
Assessed inherent risk Maximum High Moderate Low Maximum
Planned assessed level of control risk Low High High Moderate High
Planned assessed level of analytical procedures Moderate Moderate Low Low High
Planned assessed level
of tests of details risk
Planned evidence

Required
a. Using the risk components matrix in Figure 9-4, determine the acceptable level of tests of details risk for each situation.

b. Rank the five situations from the most evidence required from substantive tests (1) to the least evidence required from substantive tests (5). You may have ties.

c. Explain your ranking of situation D.

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